Businessman using a computer to analyze
getty
The IRS’s Electronic Tax Administration Advisory Committee (ETAAC) has released its 2023 Annual Report to Congress. The report analyzes electronic filing practices and data security and makes recommendations to both Congress and the IRS that focus on electronic tax administration and cybersecurity.
background
ETAAC was formed and authorized under the IRS Restructuring and Reform Act of 1998 (RRA 98). As part of RRA 98, ETAAC is required to report to Congress on issues related to electronic tax administration, such as the taxpayer experience, identity theft, and refund fraud. ETAAC also contributes to the development of the Strategic Operational Plan of the IRS.
Annual report
The report proposes actionable recommendations that align with the strategic plan and references the plan throughout the report. Among its 26 recommendations, ETAAC’s annual report advises Congress to provide timely fiscal legislation and consistent multi-year funding that will be used to upgrade technology and personnel. It also urges the IRS to prioritize IRS.gov modernization and search engine optimization.
IRS.gov
ENTAAC notes that IRS.gov, the IRS website, is a critical resource that allows taxpayers and tax professionals to find the information they need. ETAAC recommends that the IRS invest resources in improving its website content. And, no matter how good the information on the IRS website is, if taxpayers aren’t aware of these resources or can’t quickly find the information they’re looking for, “it’s all for naught.”
One of the biggest technology improvements the IRS has made during the pandemic is the availability of online accounts on websites. ETAAC believes that IRS.gov can and will become one of the best tools to serve taxpayers as long as the IRS continues to make the process, including registration and verification, easier to use.
Form 1099-K
The recommendations also highlight areas of concern focused on Form 1099-K reporting. Form 1099-K was created under the Housing and Economic Recovery Act of 2008 and debuted in 2011. The original thresholds only required payers to report transactions in which gross payments exceeded $20,000 with more of 200 transactions. But because the transactions were not reported, Congress lowered the thresholds to $600 with no transaction limit beginning in fiscal year 2022. A public outcry ensued, and on December 23, 2022, the IRS announce a one-year delay in the new reporting requirement. The change will significantly increase the work for taxpayers and businesses, as well as the administrative burden for the IRS to reconcile reported amounts with return income.
To help alleviate the very foreseeable problems, ETAAC is proposing to update the IRS Form 1099-K and its instructions before the 2023 tax filing season. Specifically, ETAAC recommends that the IRS add codes on the 1099-K to reflect the amount reported as unadjusted gross sales, like the boxes on your W-2 form for elective deferrals and the like. Examples may include a code for fees paid for sales of goods or services in the online marketplace or to indicate refunds or refunds.
Recognizing that some changes may not be possible before the next filing season, ETAAC emphasizes that the IRS must provide complete and clear guidance and encourage taxpayers to file electronically. Having information electronically better positions the IRS to use existing anti-fraud tools, they say, and also to process information more efficiently.
Electronic file
According to the report, for fiscal year 2021, the IRS processed more than 235 million individual and business returns and issued more than $359 billion in refunds. ETAAC emphasized that electronic filing is the most efficient method of filing a tax return with the IRS. It results in more returns with no shipping errors, and processing your tax return and getting your refund is faster.
The Taxpayer Advocate’s most recent annual report to Congress notes that “not only does electronic filing result in faster and better service from the taxpayer’s perspective, it also saves IRS resources.” A paper-filed return may need to be handled by multiple employees during processing. Instead, the IRS processes an electronic return using automation and only requires someone to intervene if there’s a problem. According to the IRS, a paper-filed Form 1040 costs $7.33 to process, while an equivalent electronic return costs just $0.28.
This is good news since, according to IRS statistics, during the 2023 tax filing season, more than 95% of individual taxpayers filed their returns electronically with the IRS. But taxpayers can’t file all tax returns electronically, and there will still be paper filings with the IRS. ETAAC suggests that there are opportunities to improve the way the IRS processes these submissions.
A point of stress for tax professionals, myself included, is the number of hurdles involved in communicating with the IRS when representing and assisting taxpayers. ETAAC recommends that the IRS integrate Forms 8821 and 2848 into the electronic filing process (yes, please). Form 8821 authorizes any person, corporation, firm, organization, or association designated by the taxpayer to inspect and receive confidential information for designated forms and tax years. Form 2848 allows a designated person to represent the taxpayer before the IRS. Currently, these forms must be submitted by mail, fax, or through an online account separate from the tax return, creating a disconnect between the granting of authority and the process of filing the return. Wrapping them up in the electronic filing process would allow for smoother processing and communication.
Better Technology
More technology options require better technology systems. Right now, the IRS is using a lot of old equipment. This was evident in 2022, when the IRS destroyed approximately 30 million unprocessed information returns because its current technology was so outdated that it could not handle the amount of paper documents. Incredibly, this represented only 1% of the paper received. The IRS said of the fiasco, “this situation reflects the significant problems posed by the IRS’s antiquated technology.”
Of the 776 applications used by the IRS, 259, or 33%, are considered legacy because they are 25 years old or older or written in an outdated programming language. And while software is considered legacy when it is two or more versions behind the current version, 32% of legacy software used by the IRS is at least four versions behind the current commercially available version.
Fiscal Compliance Route Sheet
As part of its report, ETAAC also highlighted that a “tax compliance road map” for taxpayers must start with three essential components: guidance, communication and education:
Tax guidance, they write, is an essential part of tax administration that empowers individual and business taxpayers. The guidance promotes voluntary tax participation by helping taxpayers understand available tax incentives and deductions, which can reduce their tax liabilities, ensure they receive the benefits they are entitled to and help them plan their finances more effectively. Effective communication is critical for the IRS to administer the nation’s tax laws fairly, efficiently, and in accordance with the law. ETAAC advises that the IRS must communicate with taxpayers, tax professionals and other stakeholders in a clear, accurate and timely manner to ensure they understand their tax obligations, rights and options. By communicating effectively with taxpayers and stakeholders, the IRS can build trust and confidence in the tax system, promote voluntary compliance, and reduce the burden of tax administration for all involved. Finally, tax education helps individuals and businesses better understand their tax obligations and responsibilities, which can avoid mistakes and potential legal problems, and make informed decisions about tax planning and compliance, leading to tax returns accurate taxes, lower tax liabilities and better financial results. . ETAAC says tax education is crucial to promoting compliance, fairness and efficiency in the tax system.
About ERTAAC
ETAAC members represent various segments of the tax community, including individual and business taxpayers, tax professionals and preparers, tax software developers, payroll service providers, the financial industry, and state and local governments.
“ETAAC plays a critical role for our country’s tax system and taxpayers,” said IRS Commissioner Danny Werfel. “Members bring a wide range of perspectives on critical issues ranging from electronic filing and online services to identity theft and other security issues. Their recommendations help improve the tax system. The IRS appreciates hard work and public service provided by committee members. .”
ETAAC works closely with the Security Summit, a joint effort of the IRS, state tax administrators and the nation’s tax industry, established in 2015 to combat tax-related identity theft and cybercrime.
You can read biographies of ETAAC members along with the full report here.
[ad_2]
Source link
